The reasons why Sears went bankrupt

Posted on Posted in Beloved Brands in the Market

SearsToday, Sears declares bankruptcy in the US. It is a very sad day for many of us who grew up circling items in the Sears Christmas catalog. But, it is a day we have seen coming for 20 years. I have a soft spot in my heart for them because my mom worked in the Sears men’s clothing section when I was a teenager. I thought it was a cool job. That’s where I got my suit for my High School graduation. My mom told me “every man needs a good suit.”

I also know of many great people who have worked at Sears over the years. From what I heard, they were extremely frustrated by the poor moves or lack of moves by senior leaders. Too little, too late.

Let’s explore the reasons why Sears died and what you can learn from them for your brand. This is the classic retailer who tried to be everything to everyone. Sears failed because they let Walmart steal their low-price positioning at retail, and then let Amazon steal their catalog shopping model.

Sears lacked a point of difference 

I tell brands all the time: “You have four choices: you can be better, different, cheaper or else not around for long.” I have never met anyone who chooses the fourth option of not around for long, but if you don’t choose one of the first three, then the fourth chooses you.

Like any department store, it is hard to be different. They are all just a collection of goods that someone else has made for them. For decades, Sears was successful in owning the “cheaper” option with their good value, at the lowest price. They likely kept that until the early 1980s.

First, the rapid expansion of Walmart and Costco put the first dagger into Sears by severely undercutting them on price. For comparable items, Sears was a 20-30% price premium.

Trying to be everything to anyone is the recipe for being nothing to everyone.

And then, as consumers moved to the big box stores and outlet malls, each of those individual retailers put another dagger into each and every department Sears owned.

  • Looking for a TV, go to Best Buy.
  • For a home renovation, go to Home Depot.
  • If you need any sporting goods, go to Dick’s.
  • And, for any clothing item, head to the nearest outlet mall.

To find the competitive space in which your brand can win, I introduce a Venn diagram of competitive situations. You will see three circles. The first circle comprises everything your consumer wants or needs. The second circle includes everything your brand does best, including consumer benefits, product features or proven claims. And, finally, the third circle lists what your competitor does best.competitive positioning

Find your brand positioning

Your brand’s winning zone (in green), is the space that matches up “What consumers want” with “What your brand does best.” This space provides you a distinct positioning you can own and defend from attack. Your brand must be able to satisfy the consumer needs better than any other competitor can.

Your brand will not survive by trying to compete in the losing zone (in red), which is the space that matches the consumer needs with “What your competitor does best.” When you play in this space, your competitor will beat you every time.

As markets mature, competitors copy each other. It has become harder to be better with a definitive product win. Many brands have to play in the risky zone (in grey), which is the space where you and your competitor both meet the consumer’s needs in a relative tie.

Using this logic, Sears offered moderate value goods, at a higher price than their competitors. There was no reason to go to Sears. They were in the dumb zone (in blue) for the last 20 years.

Walmart did exactly what Sears did, only better

Walmart used the identical playbook from Sears: well-known brand names at a much lower price than you could get anywhere else. As Walmart grew up through the 1970s and 80s, the focused on being the perfect store for the small towns or rural areas because they offered everything you would need in one place. As Walmart moved into suburbs in the 1980s and 90s, they met face-to-face with Sears.

What did Sears do to fight back? Nothing.

If we go back to the 1970s, I would label Sears as the “Power Player” brand of the retail category. Power Player brands should be the share leader or perceived influential leader of the category. These brands command power over all the stakeholders, including consumers, competitors, and retail channels. power player brands

Regarding positioning, the power player brands own what they are best at and leverage their power in the market to help them own the position where there is a tie with another competitor. Owning both zones helps expand the brand’s presence and power across a bigger market. These brands can also use their exceptional financial situation to invest in innovation to catch up, defend or stay ahead of competitors.

Power player brands must defend their territory by responding to every aggressive competitor’s attacks. They even need to attack themselves by vigilantly watching for internal weaknesses to close any potential leaks before a competitor notices. Power player brands can never become complacent, or they will die.

Sears should have squashed upstart Walmart in 1970 when they only had 38 stores, yet it was obvious that they were onto something. The smart power player brand would have paid Sam Walton $100 million for his stores and signed a do not compete. Within five years, their sales grew 10-fold from $40 million to $350 million, yet Sears still did nothing. That $100 million would look pretty cheap by the mid-1980s when Walmart grew another 40-fold up to $15 billion in sales. Keep going and by 2000, Walmart sales were $220 billion.

Sears failed to attack any competitive move made by Walmart, and they certainly never attacked themselves.

Sears once owned what Amazon now makes billions doing

For decades, Sears delivered catalogs with the widest assortment of products, customers would pick out exactly what they wanted, send in their order through the mail, Sears would send it from a central warehouse to one of their local stores and then the customer would go pick it up at their local Sears store.  I’m sure we are all looking at this model, baffled at how Sears never mastered online retailing. All they needed to do:

  • Put the entire Sears catalog on a website.
  • Let your customers order through the Sears website.
  • Mail it from your central warehouse to the customer’s house.

Not only did Amazon steal this model, they even paved the way with a “books only” model that still allowed Sears the time to launch their full catalog online.

The problem for many leaders is that to be a visionary, you must be able to visualize the future, and then take action. Many leaders of brands about to be replaced by a smarter model for the future resist the future as hard as they can. The leader could actually replicate the brand attacking them, and become the future faster than the brand attacking them. That’s crazy.

Too many of the brands link their brand with the format they deliver. Newspapers think they are in the business of broadsheets, and retailers think of locations. Remember that phrase “location, location, location.” I would rather brands think of the idea they stand for, and adjust the business model to deliver that idea.

Running a brand takes imagination

Just imagine, if in 1975, Sears fought back with all their power and squashed Walmart. It would have worked.

Just imagine, if in 1995, Sears saw the future of online shopping, and moved their entire catalog model to an e-commerce platform.

Without a vision for the future, Sears is now part of our past.